Draft proposal for a EU Tobin-tax

The original proposal was created to levy the transaction tax on entities within the FTT area that trade a financial instrument. This would mean a German bank trading in London would, in theory, be hit by the levy, but that US banks trading a German stock would not. While there are some issues of implementation, financial centres are largely unconcerned about this tax design, as they expect it to drive more trading business outside the FTT area.

Having read it through with a jaded eye – I could not find any idea as to how to enforce the reporting of such deals nor indeed collect such tax. I would welcome any comment on the practicality of enforcing the rules.

Financial Times is similarly puzzled:

While the options are not laid out, one thought is to apply the tax to instruments issued in the FTT area, or derived from securities based in the FTT area. That, of course, nets a much larger range of transactions involving Chinese, US, Indian or British trading parties that are nothing to do with the FTT zone.

Not knowing what is in mind – even doubting anything is actually in the said minds at all – the only thing I can come across is the question of title!

Suppose you sell a European stock, the problem is the recognition of title. As this is supposed to be about money, title is rather important. And especially when you want somebody to pay anything based on ownership of a security!

Suppose you buy a German sovereign bond that reaches maturity and you want it paid out, then you stake a claim to the Bundesbank telling which account you want the sum paid out to – you might even want banknotes or coin (a bit unpractical if you want 1½ billion EUR paid out in small change – but in principle yes!). Now before that sum is paid out, there just might be the small issue of your entitlement to the said security – some sort of receipt that clearly and beyond doubt shows the transaction of purchasing the bond is legal and that the tax has been paid. Ups….

It will, of course, end the concept of bearer bonds – that might throw the spanner in the works of tax-evaders and money launders. A greenback is nothing but a bearer bond to be honoured on demand and carrying no interest (but what bond does that these days?).

It does, however, in no way interfere with the negotiability of the paper. You can trade it all you want – as long as there is a documentation of the deal – and the tax has been paid!

Same thing with derivatives: As long as you have proof of title – and that tax has been paid – everything is sweet. Just presenting an IOU written on the back of an envelope, might today be, not only, perfectly legal, but even enforceable by law. Tomorrow, it might be a totally different matter of a debtor wanting to honour his debt a vista. Though I’m not legally trained – I find it hard to see any flaws in that arrangement: The same way you can’t just claim harvest on your neighbours field – if you can’t prove title! (Lots of problems with that on Cyprus – Greek land registry is notorious for not being there)

Actually I think the significant point is not in the EU document but the introductory letter!

That all of a sudden involves the US! If I’m not wrong – then we are talking anti-terror money-laundering.

This is perhaps not a tax-ploy or a bank control instrument – it is a security issue (in the 9 mm sense of the word). If this is the case – I can’t think of any reason it will not sail through.